STEP ONE: TRACKING YOUR MONEY
Organizing and gaining control of our finances can be life changing. Taking control of your finances is an exciting and liberating thing to do! It can also be tedious and take longer than we want it to. But, every sacrifice and disciplined decision is worth it. When I meet with coaching clients who want to take control of their finances, get organized, and start progressing towards their goals, the first thing we talk about is tracking their money. Why? It isn’t a very sexy, glamorous or exciting thing to do. It can get very tedious and even annoying. It takes a bit of precious time every day. Why do I teach it as the very first step?
One of my favorite sayings is “What gets measured gets managed.” When we talk about organizing and gaining control of our finances, the very first thing we have to have is awareness. We must know exactly where we’re at and what’s going on. When we have that full awareness then we are easily able to see what changes need to be made. If we don’t know the full picture it is much harder, if not impossible, to assess and make changes.
Now time for a confession. Even before I got serious with my study and implementation of personal finance principles, I knew tracking my money was important. And I attempted it, weakly, a few times. As a family, we would start recording all of our purchases, but it usually lasted only about ten days. I knew it was important, but it was so onerous, and annoying, and time consuming, and I would just forget to do it. We tried saving receipts, but we would forget to write them down, lose them, or not receive receipts sometimes. Or forget what they were for. (What did we spend $60 on at Target?)
If you search in your app store, there are many apps you can find and download to record and keep track of what you eat, and your daily caloric and nutrient intake. I needed something like that for me to be able to keep track of my spending. Something automatic, so I wouldn’t have to remember. Something that would catch every cent, so we could have a clear picture of where our money was going. Once I found a system that worked for my and my family it was life-changing! It still takes work and effort, but I have data and awareness that allow me to make informed decisions and make changes that have the most impact on our situation and cash flow.
I encourage you to find a system that works for you to be able to track all the money that comes in and goes out of all of your accounts (including credit cards and other accounts where you make payments or use to make purchases).
There are many systems and ways in organizing and gaining control of your finances, the income and outgo. Your personality and style will make the difference of the system you choose. The key is to find one that works and then work it!
Some examples of ways to track your money:
- By hand on paper-make columns to list the date, the purchase, the amount, and what category it goes under. A lot of people save all of their receipts and use these to record their expenses.
- On a spreadsheet on the computer – using Excel or Google sheets or another program you like set up columns like the example above. Computerized tracking is helpful because you can place the expenses and income into categories for better viewing.
- Find an app that you like that allows for tracking. Some I have tried are YNAB (You Need a Budget), Mint, Tiller and Mvelopes. Mvelopes has been my favorite so far, but there is a learning curve to using the program which can be a deterrent for some. Quickbooks is also a great option.
Here is a link to an article which breaks down some programs that help you track and manage your finances.
https://www.thebalance.com/best-expense-tracker-apps-4158958
For this first step, right now, we are simply focusing on tracking money coming in and money going out, so you don’t need a fancy application that does lots of things, unless you really want to dive into one that has many features. These can be very helpful and insightful, but they can also be overwhelming and have a steep learning curve. I recommend, for time’s sake and simplicity that the simpler the application the better, at this point in your financial journey.
No matter which way you choose to track, it needs to be able to have a way to create categories (simply writing next to the expense what it was for is sufficient. For example, labeling the purchase clothing, or groceries, gas, etc. or recording where the income came from (job, selling something, etc.)). This is where the magic happens. As you write down every dollar that comes in and out, you will also record what it was for, or where it came from. For example, with my own tracking I have categories for eating out, grocery spending, kids’ school lunch, haircuts, subscriptions (each subscription has it’s own
category), utilities, date nights, babysitters, mortgage/rent, auto insurance, gifts, etc., etc. If you spend money on it, it should have a category next to it. I have over 100 categories so far. If you spend it or earn it, you track it and give it a category!
After a few months of tracking and categorizing you will have some very valuable data. And this is where all your hard work and consistency pays off! With these summaries of your monthly spending and earning, you will know how much you have spent in each category each month. You will be able to figure out monthly averages, which is going to be extremely helpful when it’s time to set up your spending plan. The feeling of “where did all of my money go?” will be gone, as you will be able to see, right in front of you, exactly where it went.
WHY IS IT IMPORTANT?
But, let’s back up. Why is tracking and organizing our money so important? Well, first off, it is eye-opening for sure! I had a good handle on where our money was going, but by tracking it and running monthly, quarterly, even annual reports I could begin to see patterns and take stock of the big picture, as well as the small details. I could see gaining control of the finances and see if we were spending in alignment with our values or goals, and if adjustments needed to be made. Small adjustments can lead to big progress. One real-life example of the clarity gained through tracking is a family I was working with who decided to be very vigilant about tracking their expenses. They discovered that they were spending quite a bit of money on eating out. They had a goal of going on a family vacation, and they were able to analyze their spending and determine that spending so much on eating out was not as important to them as a family vacation. They cut their eating out spending in half and were able to work towards and achieve their goal of going on a family vacation. They were able to gain awareness, evaluate their spending, and realign their that spending based on their family values. The family could see, could decide, and could take action on what their course would be, what they valued as a family, and work together as a team. Instead of mom being the ‘bad guy’ and telling everyone they couldn’t go out to eat, they saw the numbers for themselves, and they were united in a common goal, and worked together to help each other. Who knew there was so much power in tracking your spending?
WHAT I LEARNED
Here are a few things I learned from tracking my own spending:
-My meal planning and shopping tactics are working, and I am staying at or under budget on groceries almost every month!
-We are overspending on our gas budget. This realization helped us analyze our driving habits, and ultimately determine that we were being efficient and needed to make the gas budget higher.
-I was able to see how much we spent on Christmas and make a plan to save each month so that when December comes, I will have cash ready and available to use for Christmas. In fact, all our periodic expenses have become better budgeted for because of the awareness we gained from tracking our spending. We now save monthly for periodic expenses like Christmas, car insurance, car repairs, car registrations, dental and medical costs, and even our quarterly pest control service.
-We were spending money on a few things that we really didn’t value, but that were just convenient. We were able to shift that spending to a savings fund towards some family goals instead, which is better aligned with our values and family goals.
-Although we don’t have much debt left, tracking spending showed us just how much goes to paying off debts. In a 12-month period we were able to see how much went toward these obligations, and this was extra motivation to get them paid off so that we could keep that money and use it for the future, instead of paying for the past.
-We are giving more than we thought we were, which was such a happy discovery. We try to be as generous as we can, but usually only give small amounts. By tracking our spending and analyzing where our money is going, we discovered that we were giving often.
MOST IMPORTANTLY
I am so grateful for all that God has blessed us with. I want to be sure we are being wise stewards of what he has given to us. Tracking our spending helps us show ourselves, and God, that we are making good choices with the means he has given us, and we are willing to be responsible with the blessings he bestows upon us.
I love this scripture and commentary about it: “Know well the condition of your flocks, and give attention to your herds—Proverbs 27:23 If you were an Israelite when Proverbs was written, it’s likely that your flocks would be a sign of your wealth. A wise owner would hire good and thoughtful shepherds who would watch over and care for their livestock. It was important for every one of them to be accounted for and protected.
In the same way, a wise person is going to give thoughtful care to their finances and portfolios. So much is lost from want of diligent attention.” (https://www.cdfcapital.org/money-stewardship-scripture/)
Tracking our spending is the first step to taking control of our finances and showing God that we are grateful for the abundance He gives to us, and that we want to use it the way He wants us to.
YOUR HOMEWORK
I encourage you to find a way to track your spending. Whether it’s a pen and paper, keeping receipts, compiling all of your bank and credit card statements and going through them, using an app like Quickbooks, or Mint, or Mvelopes, or another one designed for this purpose, find a way that works for you. Remember: What gets measured, gets managed. Tracking your money is your first step towards improving your financial situation.
Nicolette Alger
Nicolette Alger has a Masters degree in Family Financial Planning. Beyond her formal education and training, she has her own personal story of financial hardship, and a journey of learning, progression and mastery. Her studies began in early adulthood when she was a newlywed and hoping to start a family. Realizing she knew very little about how to apply practical principles in finance, she began a self-study journey which led her to discover her passion for all things finance. But it wasn’t necessarily money she was after, rather personal freedom, choices, opportunities and the ability to help others. Money brings these opportunities. As a mom of four little girls, Nicolette’s passion is educating and coaching women to take control of their finances, so they can be good stewards of their resources, and create freedom and opportunities for themselves and their families. You can find her blog and services at www.nicolettealger.com.
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